Published March 7, 2009

Corporate Commentary

Not quite a clean bill of health

By CHEN HUIFEN
JOURNALIST

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AS MUCH as health care providers would like to be known as recession-proof, the diagnosis is clear. They are not.

CATCHING THE CONTAGION Parkway Holdings reported a 7-8% decline in foreign patients last year even though it posted a 4% Q4 topline gain

The latest results are telling. Parkway Holdings, the biggest private hospital operator here, suffered a 7-8 per cent decline in foreign patients last year.

Even though it reported a commendable top line gain of 4 per cent in the fourth quarter, the pace of growth was slowing - down from 7 per cent in the third quarter and second quarter, and 19 per cent in the first quarter, not to mention 30 per cent in Q4 2007.

Quarter on quarter, revenue growth is withering. Between Q1 and Q2 the gain was 3.2 per cent - but the subsequent quarterly gains were 1.4 per cent and then 0.75 per cent.

Over at Raffles Medical Group, revenue continued to grow by double digits last year. But as at Parkway, the speed of growth has dropped.

In 2007, revenue growth was as high as 30 per cent. In Q2 2008, it was still 22.3 per cent. But in Q3, it was 17 per cent. And by Q4, it was 12 per cent.

Quarter on quarter, growth was 6.8 per cent from Q1 to Q2, before slipping to 1.4 per cent in Q3 and 0.14 per cent in Q4.

Parkway and Raffles are the two biggest private hospital groups in Singapore - which makes their combined figures a barometer of demand for private health care services.

If history is a guide, the drop in demand could continue, as price-sensitive local patients opt for public hospitals and medical tourists stay away.

In 1998, after the start of the Asian financial crisis, the number of foreigners visiting Singapore for medical treatment dropped almost 35 per cent to 10,698, from 16,418 in 1997. About the same time, the public hospitals' market share of in-patient admissions went up, while the private hospital pie shrank.

Staff costs could be another sticky point. Health care workers in general are in short supply, so hospital operators have to walk a tightrope between keeping wages attractive and keeping a lid on costs.

Both Parkway and Raffles have been taking steps to deal with the downturn in business.

Parkway has cut headcount and slashed senior management salaries - moves that are expected to cut costs by 10 per cent. This month, Parkway also introduced 32 fixed-fee surgical packages to try to entice local patients.

Raffles has been keeping its staff costs stable at under 50 per cent of revenue. But having hired a new international marketing head - Singapore Tourism Board health care services director Jason Yap - it appears to favour tackling the situation on the demand side.

In any case, the fall in revenue in the private health care sector will not be as dramatic as in sectors that are mainly driven by export-led demand.

With a network of GP clinics behind them, Parkway and Raffles should enjoy stable income from outpatient business, part of which is backed by corporate contracts.

A report by Nomura Singapore this week gave a positive prognosis on the two companies, saying that they have robust operating margins, brand equity and a more diversified patient base than a decade ago.

Although Nomura projected an 8 per cent fall in in-patient admissions for Parkway and a 2 per cent dip for Raffles this year, the decline is likely to be buffered by an increase in day surgery cases and the increasing complexity of cases handled, correlating to higher average revenue per patient.

So, private health care players will feel the impact from the economic contagion. They are not immune. But they are more resilient than some other businesses.